Good day, everyone, and welcome to the VimpelCom Ltd. Third Quarter 2010 Earnings Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Alexandra Tramont. Please go ahead, ma’am.

Alexandra Tramont

Good morning and welcome to VimpelCom Limited conference call to discuss the Company's third quarter 2010 financial and operating results.

Before getting started, I would like to remind everyone that except for historical information, statements made on this conference call may constitute forward-looking statements that involve certain risks and uncertainties. These statements relate in part to; one, expected synergies in our Ukrainian operations; two, the Company’s 2010 capital expenditures and three, the Company’s future competitive position, tax rates and margins.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including the risks detailed in; one, the Company’s press release announcing third quarter 2010 financial and operating results; two, the Company’s third quarter 2010 earnings presentation; three, the Company’s registration statement on Form F-4 filed with the SEC; four, OJSC VimpelCom’s Annual Report on Form 20-F for the year ended December 31, 2009; and five, other public filings made by the Company with the SEC, each of which are posted on the Company's website at www.vimpelcom.com.

In addition, the Company’s third quarter 2010 financial and operating results press release and Form F-4 and OJSC VimpelCom’s Form 20-F are posted on the SEC’s website at www.sec.gov.

VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revisions to any of the forward-looking statements made on this conference call or to make corrections to reflect future events or developments.

If you have not received a copy of the third quarter 2010 financial and operating results press release, please contact FD at 212-850-5600 and it will be forwarded to you. In addition, the press release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented on this conference call, can be downloaded from the VimpelCom website.

At this time, I would like to turn the call over to Alexander Izosimov, Chief Executive Officer of VimpelCom, please go ahead.

Alexander Izosimov

Thank you. Hello, everyone. Thank you for joining our quarterly conference call today. As always, allow me to introduce people participating on this call. Here with me in Amsterdam are Henk van Dalen, our Chief Financial Officer; Andrew Simmons, the CFO of Ukrainian Operations and Alexey Subbotin, our Head of Investor Relations. Elena Shmatova, who runs our business in Russia and Dmitry Kromsky, Head of the CIS Operations have joined us from Moscow.

On this call, we’ll discuss the operational and financial results for the third quarter of 2010 and some recent highlights. Well, let’s start with the highlights. During the third quarter, we increased our revenues across all key segments. Consolidated OIBDA margins stayed in the targeted range of high at 40s, while operating cash flow for the first nine months exceeded $2.9 billion. In line with our dividend policy, we declared an interim dividend and will pay out $600 million before the year end.

Recently, the Anti-monopoly Committee of Ukraine gave us the green light for integration of our operations there. Good financial and operational performance in Ukraine demonstrated ability of our local management team to turn around the situation, despite difficult market conditions. We are confident that we will maintain our marketing leadership in Ukraine and deliver synergies as planned.

The Russian business became a challenge as we continued to lose mobile revenue market share. The new local management team already launched the number of initiatives. They include; prioritized acceleration of network deployment, distribution optimization, and fine tuning of pricing, and employing targeted marketing approach for each region.

We allocated, we believe, sufficient resources and are confident in our ability to restore VimpelCom's market position in Russia. Then, of course, there was an announcement of our potential transaction with Weather Investments. We believe it is a good opportunity to benefit from industry consolidation and given the size and complexity of the transaction, we are satisfied with the progress made thus far.

We remain committed and continue to move forward as outlined in our October 4th announcement. We are working to fulfill all necessary conditions precedent; including getting final approval of our supervisory board and securing the necessary regulatory approvals and have targeted the closing in the first half of 2011.

Thank you, Alexander. While talking about the financial results, please bear in mind that we present the consolidated financial results with Kyivstar's operations incorporated starting from April 21st, when the transaction was effectively completed.

In accompanying press release, you will also find the pro forma financial results on the consolidated level and for our Ukrainian business unit. Our revenue increased almost 7% quarter-on-quarter to more than $2.8 billion. Consolidated fixed and mobile OIBDA was up to $1.4 billion with the best-in-class margin of more than 48%.

Year-on-year margin decline is in line with the previous quarter and reflects the return to a normal operational pattern after the removal of all crisis-related limitations on OpEx and CapEx.

Sequential OIBDA margin growth was defined by good performance in Ukraine and cost control across the board. We intend to maintain these levels of profitability and cash generation going forward. The Group's net income this quarter increased to almost $0.5 billion. Return on capital employed declined slightly mainly due to higher investments.

However, we reiterate our commitment to keep it above 20%. The $600 million interim dividend payment announced recently reiterates our commitment to shareholder returns.

Then taking you through the Group financial position, I would like to highlight here that the cash from operations – from our operating activities that increased by almost $100 million quarter-on-quarter and amounted to $1.1 billion.

Free cash flow dynamics reflect our increasing capital investments to capture the reemerging growth opportunities across all markets where we operate. Our liquidity position remains very strong with a healthy cash balance and balance sheet ratios.

The total debt-to-OIBDA is 1.4, while the net debt-to-OIBDA ratio is below 0.9. Lesser backlog and our proactive approach to this debt capital markets allowed us to decrease interest expense, improving the interest cost ratio to 8.5.

Withholding tax on dividend payments from Russia increased corporate income taxes by approximately 5 percentage points to 31.1% quarter-on-quarter. We expect the effective tax rate to decrease going forward after we complete implementation of our tax optimization programs over the years to come.

Now, let's look at the consolidated debt. VimpelCom continues to selectively optimize its debt portfolio, managing duration, currency composition, and the cost of debt. As of today, we've repaid more than 69% of our debt due in 2010, and the remaining amount will be paid off shortly with funds already allocated for this purpose. Currently, the net debt of the Company is slightly above $4 billion.

We successfully placed ruble-denominated bonds on October 19 raising 20 billion ruble or $658 million for five years at 8.3%, and we expect that it will increase the portion of ruble-denominated debt to around 50% by the end of the year. As promised during the last conference call, we paid in the meantime the $470 million bridge loan that we took for financing OJSC VimpelCom squeeze out.

Now, let's look at the dividend policy. As published during the (indiscernible) of VimpelCom Ltd. in Amsterdam, a new dividend policy has been put in place and the key features are as follows. The annual dividend shall equal at least 50% of the free cash flow from Kyivstar and 50% of the free cash flow from VimpelCom's Russian operations.

Free cash flow is defined as the consolidated net income plus depreciation and amortization minus capital expenditures, calculated according to the U.S. GAAP measurements. Annual, interim and extraordinary dividend payments can be made throughout the year. The VimpelCom Supervisory Board shall approve exact amount and timing of the dividends.

The $600 million dividend payment declared on November 15 will be paid before the year end.

Now I'm going to pass the floor back to Alexander to present our business units starting with Russia. Alexander?

Alexander Izosimov

Thank you, Henk and let's look at our largest business unit, Russia. As already mentioned, we are having problem here and we are dissatisfied with the recent loss of market share in mobile business, both in subscription terms and revenue. As a result, our top line growth rates, although solid for a saturated market, are clearly below those of our key competitors in Russia in both year-on-year and quarter-on-quarter.

With the stagnation and quality erosion of our co-active customer base, is the key reason for the underperformance. Our focus on debt repayment and a consequent ceiling imposed on CapEx and marketing spend in 2009 limited our ability to expand networks and run effective marketing campaigns. The competitive gap in the fast growing mobile data market clearly illustrates this.

In order to turn around the situation and to gain competitive momentum, the new management team in Russia focuses on improving the quality of our customer base through tighter control over distribution channels, coupled with tailor-made pricing and backed by acceleration of targeted investments and infrastructure.

We also intend to improve our position in the Mobile Data segment, which is important not only as a source of revenue, but also as a factor in attracting higher end users. A very high level of consolidated OIBDA reported last year also reflects the spending cap in 2009.

Starting from the second quarter of 2010, we returned to more adequate modus operandi and increased marketing spend, OpEx and CapEx. As a result, our consolidated OIBDA margin declined to 47% in the first half of 2010.

Following the similar pattern, we substantially accelerated investments in scale and quality of our networks especially in the second half of 2010. However, despite high investments, we manage to keep return on invested capital in Russia above 30% and intend to maintain this level.

Stagnating subscription growth in mobile was partially offset by positive trend in usage. In the voice segment, a 3.8% quarterly increase in ARPU came on the back of seasonally high usage and stable pricing supported by higher roaming revenues.

Revenue from value added services continues to grow and represents 17.3% of total mobile revenues, up from 14% reported a year ago. Here, as we just mentioned, mobile data is especially important as a new separate stream of revenues and increasingly as a fact that considerably impacting the loyalty of existing voice customers.

We continue to see broadband as the next catalyst for growth in the industry. Some might say that we have lost the beginning of the race in the mobile broadband, but we intend to regain our position and aspire to be the leading alternative broadband provider in the country.

Our integrated model allows us to offer customers different types of data services with varying speeds, quality and price. Our total broadband subscriber base in Russia increased to 2.8 million subscriptions. We continue to expand our high quality IPTV product, which we increasingly see as a key driver of our growth in FTTB by bundling it with internet access and voice services.

During the third quarter, we achieved good progress in fixed-line operations reaching record high revenue in rubles over the last six quarters. We are satisfied with progress in both mobile and fixed B2B segment. In the fixed segment, we continue to increase our customer base and demonstrated growth of revenue in ruble terms in the normally slower summer season.

The development of our transport network and strengthening ties with Russian and foreign voice and data carriers enhance our leading position in the country’s wholesale market and supported continuous growth of revenues there. The residential segment driven primarily by FTTB and IPTV continues to demonstrate good growth rates.

Now, let's move to our new strategic business unit Ukraine, which is our second largest market and our performance in the third quarter in Ukraine, beyond seasonality, was largely defined by the following factors. First, continued macroeconomic recovery with real GDP up more than 4%; second, more stable comparative environment and last but not least, our effective marketing strategy adapted to the new market realities.

As a result, we were able to reverse the negative trends of several previous quarters. On a pro forma basis, our revenues increased by almost 10% quarter-on-quarter and approximately 4% year-on-year in local currency. Our mobile data revenue increased 17% quarter-on-quarter and more than 46% year-on-year. We expect the data market in Ukraine to become a major growth opportunity going forward.

Our OIBDA increased quarter-on-quarter by more than 17% while our OIBDA margin reached almost 57%, the highest figure of any country where we operate. As we mentioned, our CapEx in Ukraine will continue to be substantial, around 15% of revenue, on an annualized basis in order to accommodate the growing demand for more sophisticated voice and data services.

On the next slide there is a more detailed view on our operational performance in Ukraine.

In our marketing efforts in the mobile business we used the targeted marketing approach with a focus on the lower income customer segment. This helped us to reverse the negative trend and increase our active mobile customer base by 4% as compared with the previous quarter. Now, our active customer base exceeds 25 million. We also recorded an increase in ARPU of more than 7% quarter-on-quarter and more than 4% year-on-year in local currency.

This was helped by growth in minutes of use, seasonal trends and change in revenue mix.

We are the fastest growing broadband operator in the country, and this was again proved by our impressive progress in fixed line broadband subscriptions. At the end of the third quarter, we had 214,000 subscribers, who are 30% more than in the previous quarter and more than double the number of subscribers we had a year ago. Generally, we are pleased with our performance in Ukraine in the third quarter and look forward to more progress going forward.

If now we look at the CIS operations. Overall, performance in the CIS segment was very good. Our revenue grew more than 21% year-on-year and 7% quarter-on-quarter, while OIBDA grew almost 14% year-on-year and 9% quarter-on-quarter. OIBDA margin also improved to reach 48.8%. This progress was supported by economic recovery in the CIS countries, particularly visible in Kazakhstan and Kyrgyzstan and Georgia. You can see the basic figures for each country in the attachments to our earnings release, which we published earlier today. As usual, a few words about Kazakhstan, our largest and most developed CIS market. Our performance was strong with more than 12% revenue growth year-on-year and 7.6% growth quarter-on-quarter. OIBDA margin was very high almost like in Ukraine at 56.6%.

We actively monitor the competitive situation in Kazakhstan in order to maintain our strong market position in view of re-launch of active operations by Tele2, expected in the first half of 2011. Our CapEx in the CIS markets continue to grow to support the 2G and 3G rollouts as well as our broadband projects. Overall, we see strong potential for further progress in our operations in the CIS markets.

Now moving to our new geography Southeast Asia and here operations delivered rather mixed results. In Vietnam, we are still trying to find a common approach with our local partner to financing the next stage of expansion. We continue to offer constructive engagement and expect the situation to be resolved shortly. Consequently, our operations at Vietnam remains limited, they operate in a kind of hibernated form.

In Cambodia, the worst seems to be over, as we managed to reverse the negative trend stemming from the regulatory actions earlier this year. Although the third quarter dynamics are slightly below our expectations, we are confident then by the year end development of our business in Cambodia will be back on track.

Well, and that brings us to our last slide, where in conclusion I would like to say that our third quarter results do reflect solid financial performance. We do recognize the problems that we are facing in Russia. The local management team has already started to implement steps to regain momentum and restore our market positions.

Our Ukrainian team managed to turnaround the situation despite a challenging market environment, and I am confident that we will be able to deliver synergies as expected. The integration plans we prepared for our Ukrainian operations are now being executed.

I cannot discuss details of the transaction we entered into with Weather Investments, but we continue to advance as was outlined in our release from October 4th. We are working to fulfill all necessary conditions precedent, including getting final approval of our Board and securing the necessary regulatory approvals. I repeat have targeted the closing in the first half of 2011.

With this, thank you for your attention. Now, we can open the floor for questions. Operator, please give the guidance.

My first question would on the measures you have taken in Russia to improve your market share. Can you please tell us when do you expect this to show on the numbers and also tell us if you expect the Russian margins to further decline in the next quarters?

Elena A. Shmatova

Yes, the measures they are based on the three milestones, which Alexander mentioned. So, first of all, of course, we're planning to accelerate our investments into the network because we are lagging behind our competitors in terms of construction of 3G network. So, this gives the basis for the product that we consider to be flagship product. So, access to Internet through mobile is essential, so that's one point. Another point is that of course, we have to support this network development with good marketing activities, pricing, excellence, and for these, we perform some analysis on the market, what are the customer preferences actually both in voice and data. We are coming with a set of tariff plans, which we'll address all the needs of the customers in more appropriate way. Then of course, we are talking about loyalty programs and customer service and our presence in distribution channel. We would like to pay much more attention to all different ways of the distribution that's available for us on the market. So, we go with this. As for the results, of course, the steps which we are taking right now, of course, cannot give results immediately. Yes, we are looking for some results coming in the beginning of next year.

Cesar Tiron - Morgan Stanley

Do you think this will affect EBITDA margins for the next quarters as well?

Elena A. Shmatova

It's hard to say specifically because it all depends also on the situation on the markets itself. Of course, the level, which we saw in 2009, was not, I would say, natural for the current stage of the market. That was the crisis most rather than normal. So, now we are coming to a more normal situation with maybe margins staying somewhere around current levels.

Operator

Our next question comes from Alexei Gogolev, JPMorgan.

Alexei Gogolev - JPMorgan

I had a question whether you have any plans to launch an RDR program either at the end of this year or maybe next year?

Alexander Izosimov

We have analyzed this and I think, Henk, actually you might pick up that question.

Henk van Dalen

We have analyzed it and at least for the moment decided to wait at least till we know how the whole Weather transaction completes over the coming months because that might, of course, change the picture of the kind of choices you want to make. On the other hand, the results are – there are also factual things you need to take into account, how to look at the liquidity of the share, is there sufficient available if you go for an IVR? The second thing is, of course, also do we evaluate the additional disclosure requirement? So, let's say, when we have clarity on the realization of the transaction with Weather, we will of course look at a completely different picture and we will evaluate at that time.

Alexei Gogolev - JPMorgan

Thank you.

Operator

Our next question comes from Tibor Bokor, Otkritie.

Tibor Bokor - Otkritie

I have a question on CapEx and 3G rollout in Russia. So, on CapEx, on the consolidated level, have seen your competitor kind of postponing the CapEx guidance and lowering the guidance for the 2010. Can you update us how do you see your CapEx for 2010? On 3G rollout in Russia, do you expect that to be completed in 2011, or what's the latest view on that thing?

Elena A. Shmatova

For CapEx, as you can see on the presentation, our capital investments in the third quarter were already equal to all investments into the first half of the year. So, we are accelerating in this regard. The only thing I can say that in the fourth quarter it will be even higher. As for the completion of 3G network, of course, we cannot say that it will be completed next year because network is always in development. Currently, we are even developing 2G network because first of all, there are certain questions with coverage because Russia is too big to be covered completely. Second, of course, you always have to add some capacity so you have growth in traffic. But the majority of the work we assume that should be done by maybe mid of 2012.

Tibor Bokor - Otkritie

Can you share with us how many base stations do you plan to have by mid 2012, I mean, 3G base stations?

Elena A. Shmatova

No, of course, it's too precise, I would say, guidance and normally, we are not giving guidance on it.

Tibor Bokor - Otkritie

Okay, thank you.

Operator

Our next question comes from Alexander Balakhnin, Goldman Sachs.

Alexander Balakhnin - Goldman Sachs

Two questions if I may. First is on your pricing strategy. As soon as you mentioned you want to fine tune your pricing, I was quite noticeable that VimpelCom has a price premium in Russia to MTS and Megafon average price per minute. My question is, do you think it may jeopardize the whole competitive environment in the country and when you will start fine tuning your prices that may trigger sort of price war, probably of a small scale but nevertheless? My second question is on the Europe, profitability dynamics. Could you please explain your sequential EBITDA margin in Russia given that on one hand, VimpelCom didn’t have a lot of margin activity or at least noticeable margin activity but at the same time, the profitability declined in line with MTS trends, for example, which had more margin activity in the quarter? Any clarifications here would be helpful.

Elena A. Shmatova

Let me start with pricing. Yes, of course, fine tuning is necessary for us, but we don't think that it will change kind of the whole situation because actually what we are targeting is definitely some selective approach for pricing of certain services which should increase consumption and increase average revenue per user. So that's where we stand now. Talking about profitability, actually we think that we increased our marketing activities in the third quarter and if you look in the press release we have a table which shows that our sales and marketing expenses increased year-on-year 22.6%.

Alexander Balakhnin - Goldman Sachs

But what I want to say is that unlike MTS or Megafon it didn't really translate into the revenue dynamics. So the cost increase happened, but revenue increase didn't fall at the same magnitude.

Elena A. Shmatova

No, of course, because it has some delay. Our share of voice is equal among all three operators in the third quarter and so that we think should give some impacts on the development in the fourth quarter.

Alexander Balakhnin - Goldman Sachs

Understood, thank you so much.

Operator

Our next question comes from Herve Drouet with HSBC Bank.

Herve Drouet - HSBC Bank

My first question is in fact a confirmation. Just wanted to check with you, I thought you were saying in answering the first question someone asked to you that you would expect margins in Russia to remain stable. Just wanted to understand a little bit more how you are going to manage that in Q4? I mean usually Q4 margins tend to be seasonality weaker. We see quite a lot of advertising inflation cost at the moment in Russia and also quite a lot of pressure in terms of commission from the dealers. I was wondering if you can elaborate a little bit more about what will make you think that the margins, especially coming in next quarters is going to remain stable. My second question is regarding may be the deal towards Weather, Orascom Telecom and the Wind in the event that for whatever reason something cannot happen on Orascom Telecom, will you be interested to make a deal just on the Wind, and if it is the case do you think Telenor will backup that choice?

Elena A. Shmatova

Let me start with margins. Actually, yes, this needed clarification. When I was talking about – around the same level, of course, it's not exactly at the same level. It can be plus minus certain percentage points because, of course, if the seasonality. Recently, the fourth quarter will be lower as well as the kind of second and third quarter most probably will be higher. So, the same question. With this, of course, that means that somewhat average for this year most probably will be somewhere around average for the next year.

Herve Drouet - HSBC Bank

Does it means also may be because there is currently inflation on advertising costs you are going to may be maintaining in absolute term is spending but in term of let's say share of voice I mean all mobile operators may decrease – relatively speaking their spending in term of share of voice all of them or may be just your expectation?

Elena A. Shmatova

Actually, we think that we are pretty effective in buying and that’s our intention that you have to understand that there is certain inflation, but our negotiations power and our history shows that we manage to get pretty good prices on the market and that’s what we are trying to do and also we have a plan may be to change a little bit the mix of our advertising spending switching from more expensive channels to less expensive channels, but keeping the share of voice on par with our competitors.

Alexander Izosimov

Before I answer on Wind, I just want to reiterate what, Elena said, in principle VimpelCom always been around as a very disciplined company on the margins. Our credo always was that margins do not happen to us, we make them happen at the certain level, and therefore naturally if we see that inflation pushes on one side we need to find ways to compensate it either through efficiency or allocating sort of less resources to some other areas and in that sense the conscious decision which been made by the management to target margins in a longer period over the year, so at the levels which we currently see. So, we’ll believe that it will be sufficient investment for us to restore market position in Russia. If we see it doesn’t work, then we’ll probably need to revisit it and understand the consequences of it and then we’ll inform the market as well. But so far, that’s the target. Now, going back to your question on eventualities around a transaction; we tend to not to engage in what if discussions. I probably will say that we like all of the assets of the transaction of Weather, and they offer different composition of maturity and risk and the premiums and the rewards. So, we believe that the balance and in that sense that each assets standalone would be also attractive, but we're still aiming at transaction improve. As far as Telenor's position is concerned, I don’t think it’s an appropriate place where – I am not the right person to discuss what Telenor will or will not backup. I am pretty confident that Telenor’s as a both shareholder and as Telenor representatives members of the Board of Directors will act in the best interest of the Company and will backup a solution and the transaction which creates value for the shareholders.

Herve Drouet - HSBC Bank

Okay, thanks. Thank you, Alexander. Thanks very much.

Operator

Our next question comes from Ivan Kim with Renaissance Capital.

Ivan Kim - Renaissance Capital

Hi, just a couple of questions please. Firstly, can you please elaborate on your distribution strategy and what was the strategy within the Euroset network and what kind of influence you have on your signal given that the kind of got the deals from MTS, for instance? The second thing on the deal as well, so it’s about the shareholder meeting. So, basically will it happen before the Algerian government may serve demands on whether they buy Algerian on the price and whether the shareholder meeting can be postponed from January?

Elena A. Shmatova

Let me start with distribution strategy. Yes, the distribution strategy which we've and which we are going to pursue is based on three milestones that we should continue to work as we did with national dealer such as Svyaznoi and Euroset, and talking about Euroset our relations with that company is of length, and we are signing the contracts with them for distribution and of course we can sign contracts with other operators like I did it with MTS like before they had a contract with Megafon and here we don't see any change in this regard. Now we also would like to increase our presence in different other channels which maybe not, I would say, traditional. It's like big malls. Hence, increase the presence of so called kiosks there and also go through such means of distribution like telesales. With this, we're putting together the plan of improving our position in all channels including the mono-brand which we have through the franchising network. So, this is very complicated detailed plan, and I just described the major points of what we're planning to do. The question is that, of course, we have that plan and we want to track our progress on this on monthly basis, which are the main points of success in implementation of that strategy.

Alexander Izosimov

As far as transaction is concerned, the approval process with ARIP has been pretty clearly specified in our earlier press release. Any of the decisions by the Algerian regulators or the governments are not on the timeline and not defining the timeline of how transaction being moved towards closure. There are a number of approvals which need to be received, some of them regulatory in the different markets, some of them internal review with the Board one more time, but Algerian government decision whether to buy or not to buy or any other to that matter is not affecting that timeline. Again, I just want to reiterate that we are happy to receive either outcome of the discussions with the Algerian government, whether we retain the asset in amicable terms and we continue to operate it, it would be the best outcome for us and we are ready to explore and are exploring different options there. Or if the government insists and will continue down the road of taking over the asset, we are ready to transfer it to the government if it's done under fair value at the fair price. So, we are standing exactly where we were on October 4, and I reiterate that it's not incorporated in discussions with the government into the timeline of closing the transaction.

Ivan Kim - Renaissance Capital

That’s clear, thank you.

Operator

Our next question comes from Will Milner with Arete Research.

Will Milner - Arete Research

Yes, thank you very much, a couple of questions, I just really want to follow-on from the question on Weather. I am a bit confused to how you can hope to close the deal, given the timing of the Algerian nationalization. I mean, the Algerian government only seems to adjust the points in international advisors. I mean, it seems more likely that you will have no view on the valuation of an asset by the end of first half 2011. So, I guess the question is, how you can hope to close the deal without knowing what the valuation might be that you receive for Algeria, which I don't think you will by the first half 2011. So, if you can speak more clearly on that that would be very helpful? The second question is actually on Euroset. I understand, you are partner in Euroset, put over 25% stake of Euroset in 2011. I just wanted to understand on what valuation basis the puts was calculated, and whether Euroset's proposed IPO might change the terms of that put?

Alexander Izosimov

We're sitting and using telecom conference here with (Moscow) and trying to understand whether Moscow can answer the question on the put. Indeed, it has been part of the original negotiation and to the best of my knowledge, the put, there is a call and put exchange and put is calculated at the original price with small percentage increase and the call is done at market. But I have to confirm, it was my colleagues, but that was the original thinking on Euroset. As far as valuation on Weather and so on, that like any transaction, it will incorporate certain risks and certain reward ratio. For us, therefore, that's exactly the judgment we had to exercise, how we incorporate that risks in our valuations and then we'll identify what our ability to recover the values which we assigned to Algeria. But I repeat that it's not a foregone conclusion that the asset will be taken over by the government.

Will Milner - Arete Research

If I can, just one quick follow-up, I mean just a clarification. Everything you said on setting up investment in network and making up share on mobile broadband suggests that total CapEx in 2011 will be higher than 2010. Is that the right conclusion to draw?

Elena A. Shmatova

Well, again, it’s a forward-looking statement and we are not yet announcing any guidance on 2011 until the budget.

Will Milner - Arete Research

Okay, thank you.

Operator

The next question comes from Dalibor Vavrushka with ING.

Dalibor Vavrushka - ING

I have two questions. One is about the Russian situation. I mean, obviously, you're now very clearly saying that you are underperforming in terms of market share and that you'd like to do something about it. I'm just wondering, I mean, when I look at your competitors and your numbers obviously, the growth rates are a little bit lower than MTS and more significantly lower than Megafon's. But there are three components. There is voice, it's data and then there is retail. I think MTS numbers, if you look at the Russian mobile, are all boosted by retail which you don't consolidate or you chose not to develop in your own business. So I'm just wondering how do you – if you're saying that you want to boost your markets, what exactly you want to do? I think in my numbers, you seem to be underperforming on the data side because perhaps lower investment. Is that where you want to mostly focus on? That leads me to the second question which is the phenomenon which appears to be happening where basically dealers are selling discounted SIMs in the low end of the market and they’ve basically subsidized some of the credit which leads to high churn and perhaps higher net additions than there will be healthy in the market. Is my understanding correct that you try to stay away from this market or from these practices? Now, obviously, Megafon seems to be pushing with both data and these kind of high churn practices which a bit be affecting margins for both MTS and Megafon, less so for you. I mean, do you want to join this game or you think you want to play it differently?

Elena A. Shmatova

Let me start may be with the second half about the high churn and a lot of sales of SIMs which are pretty evident that it is hard to imagine that there can be 2 million or 3 million of new subscribers every month in Russia. Yes, of course, we are acting slightly different in this regard because we are concentrating on the quality of the sales. We can see that it will be much more appropriate for us to continue to look for that quality and to try to get subscribers with higher ARPU and who may stay longer with us. Talking about the focus of regaining revenue market share, Dalibor, you are absolutely right in your analysis that yes, we are behind mainly in data and that's the main focus where we are concentrating in data. Let me again kind of reiterate that the basis for this will be accelerated rollout of 3G, then special pricing for small screen large screen and we also would like to enhance our position in sales of handsets. For this, already in December, we are launching certain programs of selling, I would say, (indiscernible) handsets, the Smartphone’s which are targeted specifically for Russian markets with the capabilities that will allow subscribers to use them and to use much more data services than what we see currently. So, definitely, that’s the basis of this strategy.

Dalibor Vavrushka - ING

So, if I can just ask a quick follow-up. I mean, obviously, lots of people had doubts about the returns on the 3G investment and I think Megafon is quite clearly leading the way and the other two operators seem to have been wondering where did they see these returns. I mean, the fact that you now want to go into it, is it partially defensive because you just see it happening and you don’t want to stay out of this market, or are you changing your view in terms of the visibility or perhaps level of returns that you can get on 3G?

Alexander Izosimov

I think it’s a phenomenally complex question. We clearly cannot accurately yet assess the returns going forward and we are not hiding this. I think that anybody who pretends they can, they are pretending. Therefore, our investment profile which we will be maintaining going forward is not going to be radically different from what we used to have. But we will be shifting gradually and more intensively going forward. Investments from 2G to 3G and certainly investing into longer lead time elements of infrastructure like transport network. The choice of that type of profile is dictated by our view that actually – view actually hold during last six months. That capacity in 3G on the radio part will come under relatively rapidly declining costs going forward, and therefore accelerating investment of that capacity of that nature, right now probably will be difficult to justify from the return standpoint. Transport network on the other hand will remain a necessity and we don't envisage cost declining there as rapid as in Iran. So that’s the kind of equation we are trying to work out now. We don’t have all the answers, all the T’s crossed and I’s dotted, but we’re trying to figure out where would be the no regret moves. In general, the strategy which we are now deploying and all the operating companies are going through that exercise. It’s a three-tier approach to our CapEx. The one which is necessary to maintain what we call business continuity i.e. zero growth and basically replacement of some elements of the infrastructure and so on and legal obligations. Then the second tier, which is calculated already with the – on the IRR basis and we estimate the NPV for bulk of the elements of the investment and that would restrict to 12% of our revenue and the rest will be going – will be released depending on which geography shows better promise, better returns after very thorough strategic review which will be having early next year. So, as you can see that our commitment to deliver consistent return on investment capital is intact and part of the success in this story when the visibility is so poor is to do it very carefully, and that’s exactly what we are trying to do with our CapEx. But on the other hand, of course, when you have such a gap which is being built our analysis shows that Megafon out-invested us by roughly 30%, during last two years, and of course it creates a gap in perception and quality which we cannot afford to continue to expand. We do need to bridge this gap somewhat, partially through more accurate, more targeted investment but we do need to have improvement in our network. I hope that clarifies.

Dalibor Vavrushka - ING

Okay that (inaudible) thank you, Alexander.

Operator

The next question comes from Alex Wright with UBS.

Alexander Wright - UBS

Just had a couple of financial questions please, Henk, mentioned that you will be working on bringing down the effective tax rate going forward. I wonder if you could give some indication of what consolidated effective tax rate you think is achievable over the medium to longer term. Secondly, in the P&L this quarter there is $26.5 million other expense. I just wonder if you could clarify what that is related to. Then finally, on the balance sheet I notice that's been minority interest which I think largely relates to Sky Mobile has decreased quite significantly this quarter. I am just wondering what happened there, have you written-down some assets or is there some other factor which is explaining that change?

Henk van Dalen

On ETR, I think it's too early to give a precise indication. We will have to go through a range of measures to optimize the intercompany funding structure for the Group, and that in array that it's factoring also helps to create intercompany interest which I feel perhaps at the lower rate than you could say the nominal rate. Searches for that are currently being investigated and then will be brought in place over actually over the coming one and a half year and because it requires, of course, the full optimum of the fiscal the legally accounting and the funding structures that we need to implement. So, I would like to wait till the moment that have these analysis going and of course including whether the structure will already be different than excluding revenue. So, let's wait for that and there will be – in the coming years certainly a moment that's again I guess a further indication. I do not have any particulars on that other expense. We should have to come back on you, I think it's – do you have it Alex or? No, we don't have it here so we will give it later on. On the minorities as well, I think it just shifts in the quarter but there is no specific reason to be mentioned for that.

Alexander Wright - UBS

Okay, thank you very much.

Operator

The next question comes from Viktor Klimovich with VTB Capital.

Viktor Klimovich - VTB Capital

I have two questions, first is quite technical. When do you expect to get approval in Pakistan of the deal with Weather Investments?

Alexander Izosimov

The Pakistan approval process consists of two stages. First stage is first round of review, and if nothing noted there, the approval will be granted within 30 days after the application. If the government and the regulator decide to go into a deeper analysis, that will take extra 90 days. So, that's the process and we hope that we will file as soon as we reach the obligation date as we indicated in October 4.

Viktor Klimovich - VTB Capital

My second question is regarding Russian fixed-line operations. Can you please elaborate on the new construction of fixed-line broadband network? Will you continue to build out the network in 2011-2012 or will you start to continue to monetize the current network?

Elena A. Shmatova

As to the construction, of course, we will continue to build and continue to monetize, of course. Because the pick-up rate, which we have currently is somewhere around 14%, and that's mainly connected with the fact that we are coming to a new series and there, in the new markets, of course, the pick-up rates in the buildings cannot be on the level as, for example, we have in Moscow. The number of households is fast increasing and currently it's around 8.6 million. So, we resumed the construction and yes there are plans that we should have much more in 2011, but again, this is the question connected with calculation of return on investment. So we are very careful in this and we will look on each particular city what we'll do. But talking about the strategy, I have to mention that we practically in the third quarter and, hopefully, launched regional expansion of new products, IPTV, and it looks like people are very fond of that product, and we also have plans to develop IPTV services in the region. So, at the end of the third quarter, we have presence in 13 cities and by the end of the year, we will be in 18 cities with IPTV. So, everything is on track and we are moving in that direction because fixed broadband is also considered by us to be the future product, which will bring us future together with mobile broadband.

Viktor Klimovich - VTB Capital

Elena, can you please elaborate on this IPTV? Do we need to upgrade of your networks in these cities when and where you will launch IPTV?

Elena A. Shmatova

Actually, we have children in the cities that, I would say, sitting on our own network. So with this, we are on the safe side, but going further, of course, that's one of the question, which Alexander already touched, that we have to develop our transport network to accommodate all new products, both mobile and fixed, and that's one of the points of future investments.

Viktor Klimovich - VTB Capital

Okay, thank you very much.

Operator

Our next question comes from Nadezhda Golubeva with Unicredit.

Nadezhda Golubeva - Unicredit

I wanted to come back to your margin in Russia. So you said that there is a delay in marketing spending and rating effect. Do you believe that you have to still increase marketing as a percentage of revenue or what your – or let's say the extent to which you already have increased the marketing fees, it's enough to start regaining the market share, which is your aim. So of course, I mean net of seasonality, adjusted for normal reduction margin in fourth quarter, and also do you believe that we might see some market share stabilization over again in fourth quarter 2010 or do you see increased or likely to start realizing not earlier than in 2011. This is my first question. Secondly, I wanted to ask you about CapEx, so it did increase, but I've got an impression that it’s highly postponed towards fourth quarter 2010. So could you please tell us how much did you plan to spend in Russia for the whole 2010, and so why your CapEx is so heavily shifted towards fourth quarter, especially given that you're really having problems with the market share in data, so does it have to do with some difficulties with supply?

Elena A. Shmatova

With the marketing spendings, we think that we will stay more or less on the same level as we have now again on the average for the year because the thing that currently nothing I would say dramatically change from the markets. We think that again having the share of voice from our competitors we are fine with it. That's how we see it. Talking about CapEx, of course, we cannot say right now what will be the capital investment for the whole year, but again as I said already that we hope to further accelerate the investment. Unfortunately, as you know in our history, we will always bringing to the fourth quarter in our capital investment and this year is not an exception. Yes, there were certain questions with the delays of equipment, but currently we are on track and we don't anticipate that we will see kind of any problems in the fourth quarter fulfilling our plans.

Nadezhda Golubeva - Unicredit

So, in other words, you are saying that you still believe that the 20% of sales will be fulfilled this year?

Elena A. Shmatova

No, actually we were not saying kind of 20%. Our guidance was between 15% and 20%. I think that, yes, it will be somewhere.

Nadezhda Golubeva - Unicredit

But if I am not mistaken, last time you said that your CapEx will likely be equivalent to the high end or might I’m wrong.

Elena A. Shmatova

We believe that, yes.

Nadezhda Golubeva - Unicredit

Okay and about the market share improvement, so I understand that you can't say it like for sure, but do you believe that in fourth quarter your market share can still be like under pressure or might come under – feel the pressure or you hope that you are now at the bottom, let's say, of your cycle?

Elena A. Shmatova

Again, we know what we will do. We cannot speculate what our competitors will do. We hope that, yes, we will do our best and deliver our best, but then we'll see the results.

Nadezhda Golubeva - Unicredit

My last financial question. What's the premium for shares in Golden Telecom in your cash flow statement of $144 million for nine months. Could you remind me please?

Henk van Dalen

I think, as far as I know, it's settlement and remaining tax situation in the U.S.

Nadezhda Golubeva - Unicredit

What was the situation?

Henk van Dalen

Just a tax return that still had to be fulfilled in the U.S.

Alexander Izosimov

In the settlement there was a group of investors who decided not to take the offer and they went to court and that was a pending litigation there and that was the final share. It was a small group of investors which argued with us that we should have paid – buy them at a high price.

Nadezhda Golubeva - Unicredit

This expense happened in third quarter?

Alexander Izosimov

Yeah. It’s a cash recognition.

Nadezhda Golubeva - Unicredit

But the physical payment was quite early, correct?

Alexander Izosimov

Could you ask it again?

Nadezhda Golubeva - Unicredit

You mean, recognition, yeah. I mean, the cash transaction when did it take place, in third quarter or earlier?

Henk van Dalen

If it is the cash flow statement of a third quarter, it is in the third quarter.

Nadezhda Golubeva - Unicredit

It's for nine months, so I can't see whether it's – okay, I can look. Thank you very much.

Henk Van Dalen

Thank you.

Operator

Our next question comes from Yavuz Uzay, Goldman Sachs.

Yavuz Uzay - Goldman Sachs

Thanks for the presentation, most of my important questions have been answered, but I just want to ask something about Weather, Wind transaction. At one point on several different media sources we had read that you mentioned VimpelCom management has mentioned $7.8 billion as the fair value for Djezzy asset for Algeria to buy or alternatively if it keeps operating we are looking at $1 to $1.1 billion per year EBITDA business. Can you confirm whether you actually said that $7.8 billion as a fair value for Djezzy?

Alexander Izosimov

Yes, that’s indeed been said, and the logic of that is kind of multifaceted. We know that there were quotes in that order of magnitude by other companies. Also if you look at, for example, recent transactions, we are not taking transactions like Zain, African business acquired by Bharti, but if we look simply at recent sale off of Tunisiana, which is non-controlled stake of a very similar operating environment been sold at a multiple of 6.7. So if you apply that to the EBITDA of 1.2, 1.3, which was in the previous years you will end up very close to the numbers which I quoted. So, indeed, it’s been said by me.

Yavuz Uzay - Goldman Sachs

Okay, so when you say you want to either operate Djezzy or you want to sell it to the Algerian government at those prices. We’re actually talking about a similar level of valuation in each case. So, can we assume that in your bid for Weather, that sort of the valuation you incorporated into your bid?

Alexander Izosimov

The Weather is a very complex transaction, we're buying whole set of businesses and I would rather not to engage now in discussions how some of the parts are being constructed.

Yavuz Uzay - Goldman Sachs

Thank you very much.

Operator

Our next question comes from Tatiana Boroditskaya with UBS.

Tatiana Boroditskaya - UBS

Good evening, Tatiana Boroditskaya from UBS. One question if I may, can you please comment on any intentions you have to raise debt in international and domestic markets towards the end of this year and in 2011?

Henk van Dalen

No. Actually, we cannot give any comment on that. Of course, we indicated on October 4 that in connection to Weather, we will be looking at certain block for refinancing, inter-company refinancing, for a portion of – we also indicated that we expect to attract additional up to $2 billion to $2.5 billion of that for the cash consideration in the particular transaction, but any further things that are going on we will only comment and give reaction when things are ready to communicate and for rest there is no comment.

Tatiana Boroditskaya - UBS

Thank you.

Operator

We’ll take our final question from Cesar Tiron, Morgan Stanley.

Cesar Tiron - Morgan Stanley

I would like to ask you if there is any probably to this, whether VimpelCom-Weather transaction would be renegotiated in terms of different price?

Alexander Izosimov

Well, I don't see how I can answer that question. We announced the SPA which have been signed and we are working on closing that deal. If the price would be negotiated it will be completed. Different deal completed, different transaction, so I cannot comment on that. Thank you.

Operator

Thank you. Ladies and gentlemen that does conclude our question-and-answer session for today. I would now like to turn the conference back over to management for any additional or closing remarks.

Alexander Izosimov

Well, our closing remark is only to thank you for your participation and your questions. Of course, if there are more questions, which remain unanswered, please do not hesitate to contact our Investor Relations department who will address most of your enquiries. With this thank you once again and have a nice day. Good bye.

Operator

That does conclude today's conference. Thank you for your participation.

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